Guest blog by Patrick Mazzariol
Many people have written about the key components of business success. Suggestions range from evaluating lessons learned to recognizing opportunities and having a willingness to take measured risks. Clearly such concepts can play an influential role. However, there are three key foundational imperatives for ensuring enduring success. Leadership, flexibility and sound values are vital.
To achieve lasting success, businesses need to:
- adopt a flexible business strategy,
- embrace sound company values, and
- commit to an unwavering leadership approach.
Establishing these three pillars provides a business with the foundational elements that ensure opportunity for enduring success.
1. Strategic flexibility to support sustained growth
Living in an increasingly dynamic business environment requires a sound business model with flexibility to adapt to volatile economic conditions. But also, a business model should impart the capability to achieve sustainable growth and ability to adapt to a customers needs. While not necessarily intuitive, more often than not businesses fail due to implementing the wrong strategy rather than due to economic crisis*. A flexible strategy allows a business to better manage economic fluctuations, focus on the customers evolving needs and interests, and make cash flow the number one priority. The business strategy is not just about doing things better, this is the concern of operational effectiveness, but it is about doing things differently and in a way that aligns with your customers needs. The sharpest company differentiator is having an added competitive advantage. Developing an inherent capability to redirect investment according to customer needs will keep a firm nimble.
Over the long term, increases in capital expenditures will have a direct impact on the weighted average cost of capital and will reduce equity value. Firms must apply a variety of approaches to control cash flow such as maintaining a low level of fixed cost and outsourcing certain capabilities such as IT, HR Payroll, and storage. Outsourcing is becoming more apparent as we see products with labeling indicating “designed by” rather than “manufactured by.” Moreover firms such as Procter and Gamble, where 50% of new ideas originate from outside of the company, have successfully outsourced innovation. Your business model will change with your learning curve; you will improve it as you go. Always continue to invest in the future.
2. Advocate sound values and incorporate them into the identity of your company
Define your aspirations, values, and identity as an organization and then commit to them by making them a part of your DNA. Defining your identity may involve things like incorporating consideration for protecting environment or engaging with the community as part of your core values. This commitment can complement your brand identity, reputation and help your employees relate to one another, the corporation as a whole as well as to your customers. American Express is one example of a company who embraces this approach by clearing defining their aspirations to be the most successful company in the financial service and to be the most admired company. Further, Kenneth Chenault, Chairman & CEO, clearly defined American Express values with focus on service, customer commitment, integrity, trust, quality and ethics. It was these values that guided the American Express employees during a clear breakdown of organizational communication on September 11, 2001. Losing several employees in their world trade center office and the evacuation of their corporate headquarters resulted in a severe loss of communications and threw the company into immediate crisis. Without clear direction from management, the employees made the right decisions that enabled the company to continue operations and align with corporate values. Having a motivating purpose and defined values provided coherence and common identity – essentially direction for each American Express employee which guided them to take action even thought here was a clear breakdown in organizational communication. If your values are very strong and shared internally, people will know what to do without direction from their leadership.
Failing to define your values can have a serious and potentially fatal impact on your organization success. When organizations do not give credence to defining their values, there is potential for company ethics to devolve down a slippery slope. Ethical behavior, while crucial, is probably the most difficult value to maintain. Pressure to deliver financial results inherently creates a situation of conflict. Without well-defined values, companies leave employees with room to interpret their boundaries. Recently US authorities charged eight former executives at a well-known German corporation in connection with foreign bribery. Your company is more than an instrument for generating money and mechanism matters. Long-term success requires that corporations provide employees with tangible values to help guide them and their decision-making.
3. Finally, it always comes down to leadership
Reflecting on the courses I took in my MBA program – We spent 95 percent of our time on finance, marketing, and operations, the tactics of getting the work done…. and only 5 percent on leadership. In contrast, in the real world I spend 95 percent on my time leading people, and 5 percent of by time on business tactics. Our challenge as a leader is to focus on people, and to create conditions for success. You have to encourage ideas and values, create energy and inspiration, and build trust and loyalty. To do that, you have to demonstrate decisiveness and compassion. You have also to develop others, empower people, be aware about culture and then most of all have the courage of your conviction in order to execute and deliver. You will see that in the day-to-day life, people so often have excuses for not delivering.
Create a virtual circle to inspire success in each employee by developing a challenge/reward cycle. For example Bob McDonald, Chairman & CEO of Proctor and Gamble believes that we do not have enough time. He talks about the fact that we spend more time on what is wrong. He believes that we do not spend enough time on what is right. What he learned is we have to reward success, set up new challenges, and again reward. His example demonstrates that the challenge of a leader is to build success. His second belief is that success is contagious; people want to be on a winning team. So as a leader we have to set up the conditions of success, that is the recipe to create value. Finally, as a leader, it is important to recognize that you have strengths…and weaknesses…. hence, create a team better than you. They will be the fundamental ingredients in the recipe that creates value and enduring success for your organization.
* A study by AT Kearney found that of 1200 insolvencies, only 16 percent failed due to economic crisis, while 54 percent failed due to wrong strategy. (A.T. Kearney Survey, 2009)